Coronavirus Update: State of the Market

The month of July shattered records for new coronavirus cases, hospitalizations and deaths. Unlike in the months of March and April, the epidemic is affecting both urban and rural areas in equal measure. The effects of social distancing, store closings and high unemployment have led to an economic downturn, which has impacted even the strongest segments of the commercial real estate sector.

Commercial Real Estate Prices Wane

As expected, prices for commercial real estate assets weakened in the second financial quarter of 2020. Properties with a smaller price tag (between $1-$4 million) fared better than their higher-priced counterparts, which saw a decline in activity of around 38 percent. Sales totals are also down when compared to previous years. However, this pricing weakness was not felt in every sector. The industrial sector was the only property type index to post gains. This is due in large part to the accelerated adoption of e-commerce, which has in turn supported industrial demand for warehouse space.

GDP Declines in Second Quarter

The United States saw the sharpest decline in its gross domestic product (GDP) in the second fiscal quarter of 2020 since the federal government began tracking this data in 1947. From April to June 2020, the GDP fell at an annualized rate of 32.9 percent. This was due in large part to the widespread shutdown measures imposed by governors across the country as COVID-19 began its resurgence.

To put things into perspective, the GDP only fell by 8.4 percent during the worst three months of what is now called “The Great Recession” in 2008. Economists expect GDP growth to return in the third financial quarter, but the rate is largely in question as more states are pausing or reversing their lockdown orders.

Retailer Spotlight: Wawa

Although the list of retailers filing for bankruptcy grows larger on an almost daily basis, some popular retailers are taking proactive steps to provide long-term solutions for a post-coronavirus world. One such retailer is Wawa. The Pennsylvania-based convenience store chain recently announced plans to build its first-ever freestanding drive-thru location in Township, Pennsylvania. This will be the brand’s first store focused solely on drive-thru and curbside pick-up services for its customers.

According to Terri Micklin, Wawa’s Director of Construction, the company hopes to “learn from the layout, workflow and traffic flow at this location” as Wawa explores multiple alternatives to its traditional store formats. At least one other Wawa property currently under construction—this one in Westhampton, New Jersey—will benefit from a drive-thru feature.

Ground + Space is Here to Help

Ground + Space is a leading commercial real estate firm that specializes in single-tenant and retail NNN investments. We have several listings available featuring retailers that are in a prime position to succeed in a post-pandemic economy. We are committed to providing up-to-date information and best-in-class services to clients during the COVID-19 pandemic and beyond. Are you looking for advice on whether to sell one of your assets? Please contact one of our brokers for specialized guidance during this time.

Stay Safe and Informed

The Centers for Disease Control and Prevention (CDC) offers daily updates and other information about COVID-19 symptoms and testing in the United States. Johns Hopkins University (JHU) has created a resource to help inform the public and advance comprehensive understanding of the novel coronavirus and its effects backed by experts in global public health, infectious disease and emergency preparedness. Additionally, the World Health Organization (WHO) continues to track the number and location of confirmed cases of the virus across the globe.


The Federal Reserve’s New Economic Outlook

Early last week, the Federal Reserve held its Federal Open Markets Committee (FOMC) policy session. At this meeting, Chairman Jerome H. Powell and the other committee members debated the FOMC’s next moves for supporting the economy moving into the latter part of 2020.

New Economic Projections

As part of last week’s meeting, the Federal Reserve released revised economic projections for the remainder of the 2020 fiscal year. This set of projections are the first to be released since December 2019. At the end of last year, policymakers anticipated a two percent growth in gross domestic product (GDP) and a low unemployment rate of 3.5 percent. The updated projections show a GDP decline of 5.6 percent and a 9.3 percent unemployment rate. (The latest forecast from the bipartisan Congressional Budget Office shows similar figures.)

By the end of 2020, the Federal Reserve expects the economy to resemble what it was circa 2009. (For context, the country was, at that time, in the midst of what is now known colloquially as “The Great Recession.”) With that fact in mind, it comes as no surprise that FOMC Chairman Jerome H. Powell said the following in a post-meeting press conference: “We’re not thinking about raising rates.”

The U.S. Economy Is in a Recession

The National Bureau of Economic Research (NBER) recently announced that the United States entered a recession as of February 2020. This marks the end of an economic expansion that lasted for 128 months. The length of the current recession will be determined by several factors, including domestic production and rates of employment.

Although more people have either gone back to work or have found new employment opportunities as states have begun to reopen, employment rates continue to remain high. This, plus the patchwork approach to reopening and a sharp decline in demand, has led to a promise from the Federal Reserve to not raise interest rates, at least for the time being.

New and Expanding Programs

In the face of the COVID-19 pandemic, the country’s central bank has worked to reactivate and expand emergency programs that were put in place during The Great Recession. The Federal Reserve implemented liquidity programs back in March, which flooded the country’s financial system with around $3 trillion. While this did lead to some improvement in market conditions, the Federal Reserve has had trouble setting up its two new credit programs: the Main Street Lending Program and the Municipal Liquidity Facility.

The Main Street Lending Program was created to provide credit to mid-sized businesses that are considered “too large” to receive government-backed small business loans. The program was established with approximately $75 billion in equity provided by both the Treasury Department and the CARES Act. On June 15, the Federal Reserve announced a proposal that would expand its current Main Street Lending Program to include nonprofit organizations.

Navigating These Uncertain Times

Ground + Space is a leading commercial real estate firm that specializes in single-tenant and retail NNN investments. In these uncertain times, there is still a high demand for income-producing assets leased to credit-rated tenants. We have several listings available featuring retailers that are in a prime position to succeed in a post-pandemic economy. We are committed to providing up-to-date information and best-in-class services to clients during the COVID-19 pandemic and beyond. The market changes daily, so please contact one of our brokers for specialized guidance during this time.

Stay Healthy and Safe

The Centers for Disease Control and Prevention (CDC) offers daily updates and other information about COVID-19 symptoms and testing in the United States. Johns Hopkins University (JHU) has created a resource to help inform the public and advance comprehensive understanding of the novel coronavirus and its effects backed by experts in global public health, infectious disease and emergency preparedness. Additionally, the World Health Organization (WHO) continues to track the number and location of confirmed cases of the virus across the globe.